Okay. Thank you and good morning, everybody. Welcome to the Eingham's results call for the full year 2018. I'm here today with Ian Branham, our CFO and Quentin Hildebrand, who will be acting CEO going forward, who I think are both known to all of you. I'll give you a quick overview of the results.
Ian will take you through the financials. And Quintin will provide an update on strategy and we'll have plenty of time at the end for questions. So summarizing today, we deliver another set of strong results for Inghams with a continued volume growth continued earnings growth, very strong cash generation, leading us in a really strong financial position we're making very good progress on our strategy. We're managing to address the various challenges provided by increasing feed prices off the back of the drought here in Australia with where we can't offset those costs, those costs being passed through to the market, in pricing. And so we will set for the period ahead.
We're also announcing today, and I'll come back to it in more detail, the style of our mytevite horse feed business, for $59,500,000 subject to normal conditions precedent. We expect that to complete in the next few months. I'll go through the logic for that, but essentially that adds to our balance sheet strength. And having advised at the last results call that we would consider capital management options in conjunction with the board We've worked through those options and we're announcing today a capital return for approximately $125,000,000 in total or around $0.33 a share. And subject to completion of the Might Avite transaction, the board also intends to pursue a on market share buyback of up to 5% of issued capital.
So both things being done from a position of strength where we have the financial strength to continue to invest in the business, but also return that cash to shareholders. So turning to the results themselves, as I said, continuing to grow volumes and our earnings and deliver strong cash flow. Pleasingly, chicken remains the competitive protein. So we continue to grow chicken volumes at group level up 3.2% in the face of those cost pressures and rising costs through to consumers, where we can't offset those costs. We're very much on track with our strategy implementation We continue to see good progress we'll run through that in detail, but essentially expanding EBITDA margins, particularly in Australia, which is helping, of course, to to offset what's a more challenging New Zealand market.
We are seeing the effect of rising feed costs in particular flowing through, to, consumers, ultimately, via our customers, We are seeing price rises probably averaging around 7% or 8% over recent months. But for instance, in the spot market, the wholesale channel where you see a more immediate pricing effect. We've seen very strong pricing there. And prices up some 20% from their low points over the last 12 months or so. In Australia.
New Zealand is slightly different dynamic which I'll come to, but also starting to see some early signs of of price improvement in New Zealand. Very strong operating cash generation, which I'll let Ian talk to. So more than 100% operating cash before the benefits of some working capital funding I think we're running around 112 percent operating cash before any benefit of working capital funding. So That's 2 or 3 years in a row now where we continue to convert to cash at a really good rate. So And that's, the nature of the business, but accredit to people right across the supply chain and Ian and the finance team in particular.
That puts us in a position with a leverage ratio right down at 0.7 and even post the capital management initiatives that I just mentioned. It'll go to 1.2or1.3 or something like that at a very conservative ratio. Project Accelerate continues to deliver. And with the benefits flowing through, as we say, particularly in Australia, but also helping to mitigate some of the effects of the market dynamic in New Zealand. We continue to pursue each of the initiatives that we've been through before and we'll come back to And we've added further processing network optimization, which we announced a couple of months a couple of months ago.
Quentin can cover it, but we continue to work on further opportunities. There's still a lot of improvement in this business as compared to international benchmarks and we know even from an EBITDA margin point of view that we've got further to do before we get to a level of performance that we'd be comfortable And as I've said, we continue to invest in the business. There's been a lot of capital going. Over the last 3 or 4 years, we'll start to see more of the benefit of that capital coming through with the new feed mill in South Australia coming online and new breeder facilities in New Zealand. And we continue to invest in WA and elsewhere across the network.
So a lot going on in the business and very much consistent with what we would have talked about before. Turning to the financial highlights and Ian will go through the detail, but essentially the arrows here all point the right way, which is the way I like to have it. So we like to be growing poultry volumes, we like to be growing our EBITDA margin more or growing EBITDA more than volumes as a result of the efficiencies that we're driving through the business and supported by increasing premiumization. That translates to our NPAP And as we've said, very strong cash generation leading to increased earnings per share and and ultimately a final dividend of $0.11.06 per share. You will note that we continue to fund our own restructuring.
So we IPOed partway through project Accelerate. We said there will be restructuring costs over a couple of years, which we're absorbing that we were aiming to offset that through profit on sale and so on. And that's what we've been able to do for the last few years. So We've probably broken the back of that restructuring. But it's pleasing to see that that the reported EBITDA is slightly higher than the underlying EBITDA, which means that we're more than funded our own restructuring costs.
That puts us in that position with very strong cash on hand and with the mine of our proceeds to come in and hence moving on to capital management, which I'll come back to shortly. Just a quick commentary on the 2 mark its story into parts really Australia, a very strong performance improvement in Australia and to be frank, the last 3 or 4 years, that's been our focus of the underperformance in the business was really in Australia and we're managing to continue to drive performance improvement in Australia through the poultry, through the poor poultry business. We've seen good margin growth considering the rate of price increases that are flowing through. And remembering that, this is a relative game for us. So Yes, there will be cost increases flowing through on poultry and ultimately through to the end consumer.
But it's a relative game. The other proteins will also be facing that sort of price or cost pressure. And of course chicken is the most efficient protein. So and the other thing that happens is that as prices rise, chicken is relatively more attractive than the in poultry. And that's been the case through the 1st 6 or 7 weeks of this financial year.
For instance, we've seen no change in momentum in that regard. Within retail, we've seen some of those price rises flow through. For instance, I think the increase in the barbecue bird got some attention a few months ago where it's approximately 12, 12.5 percent price increase from $7.98 to $9. That's had some moderating effect on the volume, but but overall volume continues to grow across our business. Strong performance in no.
And we are driving harder at premiumization now within Australia as well. Good volume performance in the quick service restaurant food service and the wholesale channel, driven by by strong demand. And as we say, the wholesale channel is a lead indicator of what's happening with pricing and there's been some very strong pricing in that channel over recent times, in part helped by the demise of at least one of the small players. And as we've commented before, in a competitive world, some of these rising costs where the small appliance can't offset through efficiency. Increases the pressure on them.
That's a double edged sword for us obviously because some of them are customers in our 3rd party feed sales. And we are seeing, or you'll see the volume effect there primarily of Redly a small chicken producer in New South Wales to, are now defunct. And so we lose the volume from a feed point of view, but it obviously helps support the market dynamic and that sort of pressure will continue the smaller players from everything we can see in the marketplace. We were also very much focused on utilization and profitability in our 3rd party feed business. So we'll continue to see some rationalization within that segment for a while.
But overall improving profitability while we're doing it. Turning to New Zealand, very different market dynamic and a story actually in two halves, so a strong first half over there. And then, ramped up over supply, really, factor in the second half, which we would have talked about at the last results. We've seen flow through. The team in New Zealand have done a good job to hold the result in line with the previous year.
And there are some signs of increases in that market. But from a conservative point of view, we're not really expecting a change in the market dynamic. While we are very much focused on what we can control, we're driving premiumization, we're driving operational improvement. We continue to manage working capital very well, inventory levels and the like in that market. The reality is that with the largest competitor in that market subject to strategic or ownership uncertainty, but it still is yet to resolve.
But on the basis that, that they can't continue destroying value the way they are than either a new owner. We'll take them over or there'll be some change in approach there. 1 would have to assume. But in the meantime, we're getting on with running our own race. And controlling our own business, but it's much harder work in New Zealand.
The 3rd party feed segment in New Zealand relatively strong and particularly off the back of dairy feed volumes and good solid third party chicken feed sales are different to somewhat different to the Australian market. So doing a good job in difficult circumstances in New Zealand, but looking forward to for some change in the market dynamic over there. I'll now hand over to Ian to run through the financial results.
Thank you, Mick, and good morning to everybody. I'm on page 8, which is titled profit and loss. Cox core poultry volume growth of 3.2 percent together with the accelerate benefits and the cost pass through So our gross profit increased by approximately $20,000,000, which is about just over 4% year on year. And that now shows a gross profit percentage of just over 20%, which is effectively two points ahead of where we were just before listing. The underlying EBITDA this is the EBITDA that excludes profit on sale of assets and restructuring grew $14,000,000 year on year and that's about 7%.
If you look in the appendix on page 19 titled EBITDA Reconciliation, that details the list of items that are in both the profit on sale of assets and the restructuring. The underlying NPAP, again excluding in on sale and restructuring of $112,500,000 grew 10.3% year on year. Our reported impact of $114,600,000 and the corresponding earnings per share of $0.308 grew 12.4% year on year. The increase really in that impact reflects a couple of things. 1 is the reduction in financing costs.
Obviously due to the amount of cash that we've been investing. And the also the benefit of a historical tax credit at $3,100,000 and that goes back to 2009 and highlighted previously at the half year result. On page 9, which is titled the cash flow and balance sheet, cash conversion as mixed work was actually 123%. But that included the inventory financing. Operating cash conversion ex excluding inventory financing of 112 percent is again another strong result.
The capital expenditure of $61,000,000 in line with expectations and lower than the prior year as previously said at the previous calls. As a result of the strong operating cash flow and the proceeds from the asset sales, the net debt reduced to $145,000,000 at a leverage of 0.7 times. The business continues to generate strong cash flows. It allows dividends to be declared at the top end of the policy and with cash balance of $273,000,000 allows the board to consider a number of options of both continuing to invest to grow the business and obviously the capital management of opportunities that Mick Highlighted. And with that, I'll hand back to Mick.
Thank you. So as I've said, we continue with our project, accelerate focus. And I'll hand over to Quentin to, to recap some of that. Good morning to everybody and thank you, Mick. This year, Ian's accelerating 100 years and it's a business that's been built on a strong culture.
With emphasis on safety and quality. And whilst we've been modernizing the business in recent years, we continue to to focus on the values that ensure consistent culture and behaviors across our 8000 employees. And really this is a cornerstone to to our strategy. If we at the core of the strategy is Project Accelerate and now 3 years into the project. I'm pleased to see that it continues to unlock value and that has allowed us to continue to mitigate the cost of inflation become more competitive in offering to customers and as you can see in the results continue to grow profits.
Those who've been following the business for some time would be all too familiar with the slide, reflecting project accelerate. And what you would notice is that we've added another tier on the top as we've identified further opportunities to create value, If we move on to the next slide, I thought it would be useful just by way of an update just to highlight 4 of the initiatives that are currently underway, just to give you a bit of color and flavor as to how the value is being unlocked within the business. Within the coming financial year, we will be installing automated deboning equipment at our Tiara primary processing plant in New Zealand. This will generate commensurate labor benefits. And this is similar to what was undertaken 2 years ago within the 2 big primary processing plants here in Australia with good success.
We work further on in the year ahead continuing to optimize our network. You'll recall 18 months ago, we closed one of the processing plants in New South Wales and that led to an increase in volumes through our operations in Queensland and South Australia with unit cost advantages. And now as we continue to grow the volumes, we are in the process of doubling our volumes in Western Australia. And that is giving us the benefit of moving from one shift in our primary processing plant to a second shift again with unit cost benefits. And benefits for the customer, given customers given that we're moving towards self sufficiency over in Western Australia.
Another area of progress, which will start to generate benefits is improving the productivity in Victoria. Victoria was historically one of our more expensive operational states. But with good work in the productivity within the primary processing plant as well as rebasing the grower contracts and the grower performance We're now seeing that state is more comparable with our production in other states and making that an investable proposition for further growth. And then finally, just to reiterate the announcement in June of the consolidation of our primary our further processing network in Australia from 4 down to 3 plants, again, lowering unit costs and putting us on track for this to be completed in February. So all in all, pleased with the progress that we've made and you'll see that coming through in the underlying results.
But most importantly, we have a strong opportunity pipeline ahead of us. If we move over to the next slide, reviewing We're just calling out as Mick has indicated, rising energy and feed costs, similar to other industries. We're having to deal with rising energy costs. And when we can't offset these, we have had to pass them through onto the customer. In the short term, we've sought manage our usage and have locked in gas and electricity prices beyond the current financial year.
And in the longer term, when undertaking investments, we are pursuing energy efficient capital investments to make sure that we're future proofing. On the feed front, with the onset of the drought driving feed prices up, we've maintained our forward cover at 9 months. And as feed prices continue to rise, we're needing to pass that through to customers. And that's either happening through the pass through mechanisms that we have contracted in contracts and that's roughly 60% of our volumes, all alternatively direct through negotiations and into through the market pricing mechanisms. And finally, as Mick has indicated, the impact of feed prices is affecting our 3rd party feed business.
And during the last the financial year, in question, we did lose one of our third party customers in Red Lee. But other than that, the 3rd party feed business is managing to pass through those increased grain costs and maintained margins. If I move then to the last slide I will be covering and that's a update on the FEED strategy. The strategic review of our FEED business was foreshadowed previously and we're pleased to announce that we've made good progress and this is essentially towards securing self sufficiency for our own poultry operations as well as ensuring better utilization of our assets and profitability of this business segment. In Murray Bridge, we are commissioning as we speak the new green feed greenfield feed mill and once complete that'll take us to self deficiency in South Australia.
Earlier in the year, we acquired the Weyco Mill up in Queensland, And again, this will allow us when contracts finish in the coming months for us to gain self sufficiency in Queensland. Work is progressing on the greenfield mill in Western Australia as well as we're taking the opportunity having sold the Wanaru site to upgrade and position ourselves. For the future with the new greenfield mill. In the dairy business over in New Zealand, we've added resources which at the same time as the higher milk price is allowing us to grow sales volumes, which is pleasing. And then as Mick has mentioned, the sale of my device to adamantum, both as this is not within our strategic focus and the transaction being earnings accretive for ems.
So our feed strategy review is ongoing and we're pleased with the progress to date but we will update you as we progress. Thanks. I'll hand back to Mick. Thanks, Quinn. So just to finish a couple of the last couple of points.
First of all, on capital management. So as we said at the previous results, the board would consider capital management a capital management strategy will have 2 components that were settled upon following, independent advice and working through the various options. Firstly, a capital return, as I've said, in the order of $125,000,000 or around $0.33 a share. That'll be subject to a ruling from the ATO, which process will be underway the coming months and we'll provide an update at the AGM, but we expect that to complete, if you like, or to flow through to shareholders somewhere in the December, January period. But certainly in the next 6 months or so, Secondly, of the back of the my device sale subject to that completion, which we expect in the fourth quarter of calendar year, 2018, the board intends to proceed with the on market share buyback of up to 5% of issued capital in Macquarie Securities has been appointed to manage that buyback So this is, as we've said, you've heard from myself and being on the financial position of the company in Quentin on the strategy where we continue to maintain the capital investment flowing through into the business.
And this is fundamentally about returning that cash to shareholders and we'll provide more updates as the process plays out that a 2 pronged capital management strategy. Finally, turning to outlook, We expect the demand for poultry products to continue to grow. As I said, that's what we're seeing through the 1st part of this new financial year, where we're tracking, well, Although there will be inflationary pressures through the consumer on chicken, it's a relative game and there'll be more costs going through on other proteins. So while, as Quentin has said, we'll continue to try and offset that inflation where we can, but ultimately it passes through where we can't. And we've demonstrated that we're able to do that.
Strategy implementation remains on track and Clinton will pick that up and drive it from here. As I said, we expect the continuation of the market price increases, remembering that 60% also of our volume that's a mechanic, a primary mechanic in place. And on the balance, for instance, which includes the wholesale channel. We're seeing those price increases flow through very, very quickly. The logic for that or if you like the competitive to that is that we're covered, out 9 months or so, smaller players in particular are not covered forward or not for any significant length of time.
They need to pass through those cost rises very quickly and they put a lot of their volume through into the wholesale channel. So what you see in the wholesale channel is a lead indicator if you like of what of what will flow through, through our various price mechanics. New Zealand market dynamic, as I say, we're focused what we can control, a little bit unpredictable as to how that will play out. But we'll keep doing what we're doing And I suppose the upside is that if we can return to a more normal market dynamic in that country, then there should be upside for us. Apart from that, there's some change in New Zealand's actually which Ian can explain as we go through the roadshow, but essentially increases our effective tax rate from over there and our dividend policy remains unchanged.
So in summary, good strong results essentially continuing to do what we've been doing for a while and we are looking forward to that continuing. Thank you very much. We'll stop there and we'll get
cancel your request. Please press pound or hash key. Your first question comes from the line of Craig Wolffoot from Citigroup. Please go ahead.
So just in terms of the pricing environment, you certainly had a good June half year where there was some price pressure coming through on feed. What are you seeing at retail from major customers in terms of reflecting the price increases that you're passing on to supermarket customers as well as QSR.
Yes. Thanks, Greg. I'll try and give a bit of the flavor of that. Obviously, our role is to manage our pricing through to customers. And after that they make their own decisions.
And I'll try to give you an answer without commenting too much on specific customers, although some of it's fairly public. So if I take the barbecue bird example, which I mentioned, then increasing from $7.90 or $8 is roughly 12 12.5 percent, whatever that is 13% price increase. And that flowed through and both of the major retailers moved their prices after in our case, we flowed through fee price increases to those customers under our various arrangements. Secondly, more broadly, we're seeing, across the board, price increases, we believe not just from us but from competitors, to the extent to which we are aware, but the market feedback and so on. And of course, all chickens eat pretty much the same feed.
So they're seeing the same sort of price increases. So with that being too specific, we pass through those either on a quarterly or a 6 monthly basis, typically depending on the arrangement. Those price rises have gone through. After that, it's up to the retailer. I guess the public, thing that you will see And this is where I have to be careful that not talking about our customers, but obviously, calls would seem is playing a game of trying to generate a good competitive sales number.
So we're probably seeing less price point movement there than than through other retailers. But I guess the point being that our job is to do what we can to offset those promises passing through where we can. After that, it's up to the customer. Flatten on the retail side across QSR And Foodservice, it varies by customer, but essentially Anyway, the chicken game is used to prices a feed price is going up, feed price is coming down. So it works its way through.
And as I've guide, the wholesale dynamic is much more immediate than we've seen in Australia, we've seen price increases of in excess of 20% of the lows.
Okay. That's a that's comprehensive event. So I just wanted to, I did join the call late, so I apologize if you have gone through this. But, in the appendix, there's, the EBITDA reconciliation slide 19. I just wanted to understand the restructuring, sorry, the restructuring, farming exits, network.
Cross over costs. Just wanted to get a feel for what, we should expect in FY 'nineteen in those sorts of areas.
Yes. So look, I'll frame this up and then Ian can comment if need be. So look, what we said couple of days ago or through the IPO process is that we will partway through the Accelerate process that there would be restructuring and that we'd try and fund that restructuring through. Now on profit on sale and cash generation, and that's what we've been able to do. While there may well be new initiatives in the future, as we sit here now, we would expect restructuring to moderate.
Significantly, in terms of the known initiatives under the Accelerate program, Of course, if there's different approaches in the future that can be discussed. But in a business of this size, we would expect on a regular basis, there'll be restructuring charges of a couple of 1,000,000 maybe that you would look to either we can split out and report it, but effectively, you know, a couple of 1,000,000 might be a more normal sort of operating cost. My own view of that is that it's healthy to have that sort of level of or provision for that sort of level of restructuring because you don't want to sit on things that you should deal with because you're worried about the restructuring costs, but we've broken the back of the significant restructuring charges. So the farming exits 1 in particular, like what is the cost
incurred for? There's $4,600,000 cost from
the equity that's paying our contracts early? So from a strategy point of view, this is of course where we're, concentrating our production through Queensland, South Australia starting to move Victoria and will be increasing volume in WA, which will ease assets in New South Wales in particular, but E and do you want to just
Yes, the 2 components of the cost, Craig, so where we actually own the asset, but I'll sorry, where we have a lease. Then we've got an onerous lease that we take up as part of the restructuring as we exit that. And again, that's in New South Wales. And then with a contract growth, it's basically a payment, the contract, termination fee effectively.
That's a predominant charge in there is closing down the breed of farms in New South Wales as we shift our operations to the other states. Okay.
My last one was just receivables, was down 14% year on year. Let's get an understanding as to the reason for the movement there.
It's simply good cash collection, to be honest. Yes, I mean, there's we didn't do anything.
Particular timing issues?
No, there wasn't. The timing wasn't there. We didn't do any kind of untoward deals or, you know, discounts or whatever else. It's like the team yes, under Neil's study, did a fantastic job of cash collection. In fact, it beat our expectations.
Customers, we didn't expect to pay that did.
So I guess what's behind that, Craig, is that remember, we've moved it from a family business who ran the business very well, weren't terribly focused on some of those things. And it takes a little while, I, a few years to really get your systems working and your policies working and procurement working in tandem, which is, on the other end of the ledger. But that so there's a series of things which come together there, not just on receivables, but overall working capital management.
Thanks, Craig.
Thank you. Your next question comes from the line of Paul Bies from Credit Suisse. Please ask your question.
Good morning, guys. First one, just first one, just a quick follow-up on that one on the retailer price move. So you described that, I guess, the dynamic there and in many cases you're moving and how the retailers go after you. Just curious if one looks at the, I guess, the lag in terms of the feed cost impact on your own cost base, And when you then, I guess, get to move and thinking specifically in some of those areas where you've got longstanding relationships, say, QSR segment, but you might not necessarily have as something as defined as in other contracted areas. Just interested to know lag, if anything, and how you see that lag playing out if there is one in first half, second half next year?
Let me take that in 2 or 3 steps. The first one, through to, well, any customer really where we have a price mechanic. As we've said before, you can get a little bit of price timing. But fundamentally, what happens is that movement in feed price say over a half converts through to a price adjustment at the start of the next half or the quarter. So it may be July or October.
Now to the extent to which that lines up, with our Ford cover, if we're buying 9 months forward, then they're roughly in the same timeline for as feed price increases come through. You should start to see the adjustment. In other words, we effectively get a lag because we're buying for that that 9 months. But there is room for price timing, particularly to get rapid movements what tends to happen is you probably get squeezed a little bit at the end of the half and then you get the price rise through the start of the next half. And so on it goes.
So now the reverse will be true when and crane prices will come down and when they come down, you might get a bit of price timing the other way. You wanted to put a number on that, and I probably shouldn't, but there's probably $5,000,000 or $8,000,000 that that might have that impact or was it a bit hard to put a number on it, just to give you a sense. And that can unwind when it's down as the other way, fundamentally, that's a mechanic that we're very pleased to have, if you like. On QSR, well, maybe it shouldn't be too but where we don't have a price mechanic yet to discussion with the customer, obviously whether your retail customer or QSR customer will do our best to keep our customers' competitive while doing what we need to do. Sometimes that can be, we pass through the mechanism, but then provide some promotional support or do something on it.
To assist, particularly where it might help us move key SKUs that we want to move. So it's not it's not hard and fast. We'll work with our customers to mitigate the effect where we can. And the combination of all that bit of price timing, bit of mitigation is probably squeezed this a bit, but, but fundamentally, there's been very significant price rises flowing through. And we expect that to continue through this half.
Got it. Thank you.
Just on the New Zealand business, I guess you called out the market dynamics there and being pleased that the overall result was held flat in most conditions. Having said that, there's obviously quite a big shift between the first half and second half in terms of EBITDA performance. Just wanted to get a feel for, for again, I know you've got a kind of a conservative outlook for next year. There'd be quite a big difference between sort of extrapolating that second half performance versus sort of the whole year performance trying to get an idea of how long that second half momentum goes through because obviously if you extrapolate that, then you'd be looking at a sizable step down next year.
Yeah, and that's, why we're a bit cautious in our commentary, but if you like our internal, focus is that we're not assuming an improvement in this half in New Zealand, but we are assuming an improvement in Australia. So one's carrying the other response, but, but we'd be looking for improvement in the second half. And that'll be partly because there'll be more self help we can do for the second half just in terms of time, some of which Quintin covered. But essentially, that's that, that's our logic. We're not assuming an improvement in this half.
Now your guess will be as good as mine as to what happens around the major competitor there and I think it's well canvassed. But the challenges that they have or they've imposed on the market or whatever you want to take, but we would look forward to a change in dynamically.
Got it. Thanks. And then last one for me, just on, accelerate 2.0. I mean, haven't put it in, so maybe not, but just wondering if you can give a little bit more color on expected CapEx outlay and or return on on CapEx for the 2.0 initiative.
So I'm probably going to help Quintin here by saying he'll talk to some of that next time and we'll give him time to segregated feet, more under the desk, I suppose. Obviously, it's been heavily involved in all this sort of way through, but they are primarily operational improvement initiatives and not CapEx. Would be the overarching comment I would make. But we'll give it a bit of time to put some numbers to it.
Understood. Okay. Thanks guys.
Thanks.
Thank you. Your next question comes from the line of Michael Pete from Goldman Sachs. Please ask your question.
Just on the feed supply side, obviously with the lower wheat crop here, you're having to source more offshore and sort of impacts that having on cost with currency and things like that?
So a couple of things. First of all, I guess, still factored into our effective fee price, which flows to our price mechanisms. In other words, that includes the price of raws, the shipping and basis points, etcetera. But, so what happens in the feed dynamic is it's really New South Wales and Queensland under the most pressure. South Australia, even Victoria, and Sazmania is small, but reasonably okay, not great, but reasonably okay.
And WA is quite strong. So what we're seeing is flows of feed from the West Coast to the East Coast. If you look back at 10 or 11 years ago when that last happened, that primarily fills the gap in Australia. And if you look tonnages, it will go pretty close to filling the gap. The second lever we have is that we procured grain in Australia for New Zealand, and it's easier to import corn, for instance, or other seeds into New Zealand than it is into Australia.
So we can import into New Zealand and hold or redirect the that would have been going to New Zealand through our own, use here. So they're the first two things that happen. And imports, while we prepare for imports and there's a quarantine process around that, that you work with Canberra on. We're prepared for that, but we're not there yet.
Great. Thank you. And just maybe for Ian, just CapEx for the year we're in? What would you expect there?
Yes, I think we did circa 60, I think what we predict in this year circa 75. That'll be,
while there's a few moving parts in there, we'll some of the investment into the New Zealand business that Quintin touched on and I would call some of our self help. That's probably accounts for most of the step up most of the step up.
So what would you call the maintenance versus sort of additional projects? Split on that?
Probably that, that, 60, 65 is sort of regular CapEx and we're probably putting an extra 10 into New Zealand, that sort of 10, 15 into New Zealand. Thank
you. Your next question comes from the line of Matt Snarkerz from Ethical Partners. Please ask a question.
Yes. Good morning. Thank you guys. Just two very quick questions. Just on the 3rd party feed business, so you've talked a lot about that.
Talked about price rises and things like that. Can you just comment to volumes, often in throughout times, prices go up, the volumes go down any comment on volume to the 33 business over the half?
Yes. So within, so really in two parts in New Zealand, the easy one, been growing and that's because dairy feed is a key component of that business there and dairy feed volumes have been strong off the back of stronger dairy process, stronger dairy fundamentals, and our chicken feed has been quite the chicken feed sales have been quite stable over there. In Australia, we've seen a drop off in our volumes. And in fact, we put that in the the pack there somewhere on the Australian segment that's called out there, where feed volumes are down from 16% to 17%, the majority of that is the demise of Red Lee, which as we say has a sort of cross not corresponding, but has a benefit in terms of poultry, the poultry market itself. But So it's hard to break out what would be the effect of rising fee prices versus redly itself.
But rising feed prices were a factor, of course, in red leas to my side. We should also add, as I think both Quintin and I have, that the 3rd party feed business in Australia needed some attention and focusing on it as a business in its own right and driving profitability and all the rest of it. So some of that volume is also because we're choosing to run the business a different way. But I think third party feed sales where we'll get some cycling still at Redley, I suppose. So that will still flow through for some time after that, perhaps third party feed sales will stabilize.
But we still have some utilization, some work to do to improve utilization, particularly in New South Wales. So as per the farming answer, as we've shifted production to the other states with probably long feed milk capacity in New South Wales, we deal with some of that with the modified sale in that four seats. And we've got a little bit more work there to do.
Okay. Thank you. And just a
quick question on that kind of $5,000,000 to $8,000,000 impact or number you called out recently as to the kind of gap of, I guess, the impact of fee prices versus what you couldn't recover. Just to be was that for the half or the year or? It essentially impacted the second half. And it's my estimate And essentially, it's where we've chosen to moderate our fee pass through mechanisms in the interest of working with our customers. But remembering that we're passed through, I'll probably get the numbers wrong, but $50,000,000 or $60,000,000 in price increase impacted more than that.
So Yes, so it's a small percentage of that it's where we've chosen to moderate or to work with our customers on promotional funding or other things just to try and smooth the passage such an eyes wide open choice that we make. Thank
you. Your next question comes from the line of Ariane Narosi from UBS. Please ask your question.
Hi, guys. Good morning.
Good morning. Just the first one for me. Could you please give an update on, in terms of your cost out progress? So I think in the first half, you said you you'll be at about a 140, 150 mil, and by the end of this year. Is that still the case or is it Is it more
or less? Yes. No, it's still very much the case. So that we're tracking, we're tracking on a slightly slightly ahead of those numbers, before you get to some of the newer initiatives that Quintin talked about. He rattled through, but essentially, I guess because we've been talking about them for 2 or 3 years now, but we continue focus on automation, we continue to focus on labor efficiency, getting the benefits of the more flexible EVAs.
Quentin has said, both automation and that labor focus really switched to New Zealand for the next little while. We're obviously very focused in Australia for the last few years. Most of the network rationalization is done, although we're still in the process of sorting through the or implementing the further processing network optimization that we announced a couple of months ago and a bit of work to do in New South Wales feed mills. But that won't be a cost anyway. It's just, looking at reducing our asset base there.
And the other initiatives I won't go through. But essentially, we're tracking nicely on those plans where we're getting towards the end of the first wave of Accelerate that we talked about through the IPO and Quentin is working with the teams now on Accelerate 2.0, which we're touched on, but we'll give him a bit of time to to quantify some of that.
And just to confirm that the project accelerate overall with the phase 1 and 2, it's still was still 150,000,000 to 200,000,000. Is that still the case? Is
Yeah. So the first way, which we would quantify it in detail was a $160,000,000, and we said there's about of other things, which included things like the FP Network rationalization, which we recently announced. So yes, is the answer. There's still some benefits of that to flow through in a run rate sense before you get to the newer initiatives that Quinn will drive.
And just one in terms of your price increases, again, conscious if everyone's asked this, but in terms of the magnitude, I understand you've got price increase across the majority volume, but how the what's the magnitude being like? Has it been more than has it been enough to offset the price increase or then half of what is needed?
No, absolutely. It's enough to offset the price increase with the exception of what I talked about where we choose to moderate around the edges a bit. Because you're seeing, you're seeing no sort of, well, maybe not everyone's across it, but you're seeing from a low point, I 18 months, 2 years ago, you're seeing a near well, a very significant increase in the wheat price from maybe in the low 200s to the high 300s, pushing forward, that sort of number. That's depending on the state. It can vary, but that that can be 30% of your cost of goods.
So, so you need to be recovering 6%, 7%, 8% and that's what we've recovered. And, except where we're choosing to chosen to moderate the reasons I've said that, that to some extent is offset by very strong wholesale channel where we have a competitive advantage as prices rise because we're covered long. We're protected against some of that price increase and certainly our smaller competitors aren't.
Yes. And so just in terms of the split between QSR and Supermarkets or your retail side of things, could you just give a bit more color around the price increase across those two channels. So has it been easier or harder in QSRO?
Look, it works differently. It might be the answer. So retail is our biggest channel and the one we focused on, the most. Interestingly, we've probably been growing the wholesale channel more than the others, which is partly because as we keep saying, the pressure on smaller players provides opportunity. And QSRs are slightly different because there's a much stronger mix of SP product within, most of what we talk about is fresh chicken.
By the way, we should probably say that if the product yes, while the cost flows through, it's also a high price point, high margin segment. Tends to be a little bit more stable, the pricing in that regard. And QSR has a much higher FP mix than fresh chicken, but So it's different. I wouldn't say one's harder or easier, and wouldn't want to give the wrong impression. We're not just jamming through pricing for we work with our customers where we can to either offset those increases or mitigate the effect of them.
Yes. And just final one for me. Could you give us some color on how bit the wholesale business was from earnings perspective or just any sort of idea?
Yes, I'll give Liam a sense. I mean, strategically, of course, it's a separate business. And obviously, inghams, you can understand with their link to horses and racing that why we might have been in it, but there's not too much connection to the rest of the business, but Dean, do you want to give a bit of profile?
In terms of the business? Well, I
think we're selling for 59.5, but the earnings that we're selling
Yes, look, I mean, basically 59.5 is circa 9.5 times a deal in terms of these earnings, obviously, from a perspective where we see today, it's accretive we would split circa 7.5 times.
Sorry, that's EBIT? Yes, EBITDA, yes.
Perfect.
Thank you. I'd now like to hand the conference back to today's presenters for closing remarks. Please go ahead.
Alright. Thank you very much. I suppose I should just acknowledge, you know, I'll be signing off executive capacity, this week and handing Andy, Abert Quinton and I'll be continuing as a director for a while and doing my best to support the team and ensure continuity, but I look forward to catching up with some of you over the next few days. But thank you for your support as investors or otherwise over this time. And we'll hand over to good hands in Quentin and the team.
Thanks very much.